Economic Systems

Communism

►Developed by Karl Marx and Friedrich Engels in their books Das Kapital (1867) and The Communist Manifesto (1848)

Marx described a society with two classes in bitter conflict:

►The Bourgeoisie, who owned the means of production (the land and capital).

►The Proletariat, who had nothing but their labor, and who lived meager existences, exploited by the Bourgeoisie.

Marx believed the proletariat would rise in revolution and overthrow the

bourgeoisie.►Competition

would push many bourgeois into the proletariat.

►Eventually this much larger group would awaken and rebel.

The proletariat would then seize all of the capital and abolish private property.

►The means of production must be held by the government to prevent new classes from arising.

►Society would follow Marx’s formula: “From each according to his ability, to each according to his needs.”

Does it sound like a bad idea?

►Someone once said that anyone who isn’t a communist at age 18 has no heart . . .

► . . . but anyone who is still a communist at age 30 has no brain.

Criticisms of Communism

►#1. Some people disliked communism because Marx criticized religion and communist governments often suppressed it.

►Marx called religion the opiate of the people (but then he never got to see television.

#2. The Revolution would be violent

►The Bourgeoisie would not give up their property and privilege without a fight.

►Most communists didn’t care. Mao Zedong said that “Revolution comes from the barrel of a gun.” He thought the bourgeoisie were getting what they deserved.

#3. The problem of the Nomenklatura

►The class that ran the Soviet government.

►They treated themselves just like the bourgeoisie had.

What does a store look like? Would you recognize it even if you couldn’t read the

signs?

►Maybe not in Soviet Russia!

►The best stores looked like this outside.

►Inside like this.

What’s up with that?

They didn’t want the people to see how much better they were

living.►Most Russian

stores looked like this!

►Marx always said whoever controlled the capital would take advantage of it.

It also made the government really, really powerful!!!

►This created other problems.

►There was no institution left that could stand up to the government.

►Marx said the state would “wither away.” It didn’t.

#4 The Problem of Incentive►What makes

us work hard?►Probably more

importantly, what makes us innovate?

►What if there’s no payoff for all that hard work?

What might a society with little or no incentive look like?

Long lines?Empty

stores?That’s what

the Soviet Union often looked like.

Communists often said we don’t have to be like that.

►Properly educated, people can be happy in a communist system, and work for the good of all.

►They hoped that man was Tabula Rasa or a blank slate, like John Locke had thought.

►But if man has a basic human nature, perhaps communism is impossible.

After all, the Soviet communists had 70 years to educate the

“Soviet man.”

►But both Russia and China have largely given up on communism.

#5 Central planning doesn’t work

►Communist governments have tried to organize production more efficiently.

► In the Soviet Union it was called GOSPLAN

The idea was to set prices and determine quantities.

►There were always problems.

► It turned out to be too big a job too handle.

►How do we do it?

We just leave it to take care of itself

►Adam Smith called it the Invisible Hand

► If people are left to pursue their own self-interest, the market will regulate itself.

►We get what is called “Consumer Sovereignty.”